Tax Implications of Transferring an Inheritance Share to a Child by Donation in the Philippines
(A comprehensive legal‑tax primer as of 26 July 2025)
1. Overview
When a Filipino heir decides to pass his or her inherited share (whether cash, personal property, or real property) to a child gratuitously rather than by sale, two bodies of law immediately intertwine:
- Succession law – Articles 774‑1105 of the Civil Code and the Family Code govern who inherits, how much, and the effect of renunciations or advances.
- Tax law – The National Internal Revenue Code (NIRC), as amended by the TRAIN Law (RA 10963, effective 1 Jan 2018) and subsequent issuances, imposes estate tax, donor’s tax, documentary stamp tax (DST), and certain local transfer taxes.
Understanding how these rules converge prevents double taxation, missed deadlines, or void transfers.
2. Succession Context
| Stage | Key Concepts | Effect on Tax |
|---|---|---|
| Death of decedent | Estate is created; legitimes fixed. | Estate tax (6 % of net estate). |
| Partition | Heirs agree or court orders allocation. | Transfer still within the estate. |
| Renunciation or waiver | An heir disclaims or assigns his share. | May be estate‑tax‑neutral or trigger donor’s tax (see § 4.3). |
| Donation after distribution | Title already in heir’s name; heir now donates to child. | Pure donor’s tax scenario (see § 4.1). |
3. Donation vs. Other Modes of Transfer
| Mode | Main Tax | Rate | Basis of Valuation |
|---|---|---|---|
| Sale to child | 6 % Capital Gains Tax (CGT) on real property or graduated income tax on movables; plus DST & local taxes | CGT: 6 % of higher of zonal or FMV; Income Tax: up to 35 % | Zonal or FMV / Selling price |
| Donation | 6 % Donor’s Tax on excess over ₱250 000 per donor per calendar year | Fair Market Value (FMV) on date of donation | |
| Succession (inheritance) | 6 % Estate Tax (net estate) | FMV at time of death |
Why choose donation? Avoids CGT and simplifies immediate transfer but accelerates tax cash‑out because donor’s tax is due within 30 days of notarized deed. For appreciating real property, making the donation sooner may reduce absolute tax paid.
4. Donor’s Tax Mechanics and Special Rules
4.1 Basic Rules (TRAIN Law)
- Flat rate: 6 % of total gifts per calendar year in excess of ₱250 000 aggregate exclusion.
- Related parties: Parent‑to‑child is a stranger‑exempt transfer; same 6 % rate applies.
- Return: BIR Form 1800 filed and paid within 30 days from execution of deed.
- CAR (Certificate Authorizing Registration): Required before Registry of Deeds/Transfer Agent can record the transfer.
4.2 Valuation
- Real property – Higher of zonal value or provincial/city assessor’s FMV on the date of donation.
- Shares listed on PSE – Weighted average closing price nearest donation date.
- Closely‑held shares – Net asset value balance‑sheet method, adjusted to FMVs.
- Cash – Face value.
4.3 Renunciation of Inheritance
General/Pro‑Rata Renunciation Heir waives in favor of “the estate” or “all co‑heirs pro rata.”
- Tax effect: Not treated as a gift; no donor’s tax (BIR RMO 15‑2003).
Specific Renunciation Heir waives specifically in favor of one or some designated heirs (e.g., a child).
- Tax effect: Deemed a donation of the share waived; subject to donor’s tax.
- Estate tax already settled? Estate tax still computed on net estate before renunciation; donor’s tax is additional.
4.4 Collation and Legitimes
- Donations to compulsory heirs (children, spouse, parents) during lifetime are presumed advances on legitime (Articles 1061‑1070, Civil Code).
- On future settlement, the value of donated property (FMV at time of donation) will be added back to the estate to check legitime impairment, though no extra tax arises at that point.
5. Other National Taxes
| Tax | Trigger | Rate | Notes |
|---|---|---|---|
| Documentary Stamp Tax (DST) | Donation of real property or shares | Real property: ₱15 per ₱1 000 of value; Shares: ₱1.50 per ₱200 par value | Pay simultaneously with donor’s tax. |
| Value‑Added Tax | Donation is not a sale in the ordinary course of trade; hence exempt. | ||
| Capital Gains Tax | Not applicable to donations. |
6. Local Impositions & Registration Fees
| Charge | Ordinance Basis | Typical Rate |
|---|---|---|
| Local Transfer Tax (province/city) | Local Government Code | 0.5 % to 0.75 % of FMV |
| Registry of Deeds Fees | PAO and RD schedules | Sliding scale; minimal compared to tax |
| Real Property Tax (RPT) | Pay any arrears before title transfer | Penalties may be condoned by local amnesties |
7. Compliance Roadmap
- Prepare and notarize Deed of Donation or Deed of Renunciation/Assignment.
- Secure Tax Clearance on previously unpaid estate tax, if any.
- File BIR Form 1800 + attachments (TCT/CCT, tax declarations, appraisal if needed).
- Pay donor’s tax, DST, and surcharges/interest if late.
- Obtain CAR from RDO.
- Pay Local Transfer Tax at Treasurer’s Office.
- Register deed & CAR with Registry of Deeds or Corporate Secretary (for shares).
- Transfer Certificates issued in child’s name.
Deadline tip: The 30‑day donor’s tax deadline is not extendible; interest is 20 % p.a. plus 25 % surcharge for late filing or 50 % for fraud.
8. Strategic Planning Considerations
| Scenario | Best Practice |
|---|---|
| Parent still living and wants child to enjoy asset now | Inter‑vivos donation; donor’s tax at 6 %; possible use of staggered gifts to maximize annual ₱250 K exclusion. |
| Estate still unsettled; parent (heir) wants child to get his share | Execute specific renunciation in child’s favor knowing donor’s tax will apply; ensure estate tax return reflects waiver. |
| High‑value property with low historical cost | Donation avoids CGT but triggers immediate donor’s tax; compare cash flow vs holding until death. |
| Multiple properties | Consider deed of assignment of undivided share first, then partition later to save on multiple DST payments. |
| Asset is family home (up to ₱10 M FMV) | Family home deduction (estate tax) applies only at death; donation forfeits deduction—factor this in. |
9. Illustrative Example (Real Property)
Estate distribution complete: parent inherited a parcel worth ₱5 000 000 (zonal value).
- Parent donates entire property to only child on 1 August 2025.
- Donor’s tax = (₱5 000 000 – ₱250 000) × 6 % = ₱285 000.
- DST = ₱15 × (₱5 000 000 ÷ ₱1 000) = ₱75 000.
- Local transfer tax (Manila, 0.75 %) = ₱37 500.
- Filing deadline: 31 August 2025 (30 days). Late payment adds surcharge & interest.
10. Common Pitfalls
- “Waiver lang ’yan, no tax.” – Specific waivers are taxable gifts.
- Late filing due to misunderstanding 30‑day rule.
- Using assessed value instead of zonal/FMV—BIR will re‑compute and impose deficiency.
- Unpaid real property tax delays CAR release.
- No Certificate of No Improvement when donating vacant land—required by some RDOs.
11. Quick‑Reference Checklist
- Confirm estate tax settled or declare pending waiver in return.
- Draft deed (donation or specific renunciation) with full property description.
- Secure updated Tax Declaration & latest RPT receipts.
- Compute donor’s tax & DST using zonal/FMV.
- File BIR Form 1800 within 30 days.
- Pay local transfer taxes & register deed.
- Update title/stock certificates.
12. Conclusion
Transferring an inheritance share to a child by donation is perfectly lawful and, under the TRAIN‑simplified 6 % donor’s tax, often financially efficient—if executed with clear awareness of donor’s‑tax triggers, renunciation nuances, valuation bases, and tight filing deadlines. Thoughtful planning—preferably with a tax counsel and a licensed appraiser—ensures that a parent’s generosity remains a blessing, not a tax headache, for generations to come.
This article provides general information and should not substitute for personalized legal or tax advice. Consult a Philippine lawyer or CPA for specific transactions.